WASHINGTON - The city of Harvey, Ill., has agreed to settle Securities and Exchange Commission charges that it misled bond investors by diverting proceeds away from the projects for which they were intended.

The SEC announced the agreement Friday, months after it first brought a civil complaint against Harvey in June.

The complaint was filed in the U.S. District Court for the Northern District of Illinois Eastern Division, and was notable for being the first instance of the SEC getting an emergency court order to halt a municipal bond offering. The SEC sought and obtained that injunction when it discovered the city was planning to issue more bonds after the SEC's investigation indicated it had been misusing the proceeds of past offerings. SEC investigators found that Harvey had diverted about $1.7 million over the course of 2008, 2009 and 2010 offerings that were supposed to finance a hotel and conference center. The official statements made no mention of proceeds being diverted.

In the settlement, the city agreed, without admitting or denying the SEC's allegations, to cease violating federal securities laws and to hire an independent consultant and audit firm. The city also agreed to be barred from issuing munis for three years unless it uses an independent disclosure counsel for offerings. The choice of disclosure counsel must be acceptable to the SEC, according to the terms of the final judgment filed with the court.

"These measures are designed to prevent future securities fraud by Harvey and to enhance transparency into Harvey's financial condition for future bond investors," the commission said in a release.

According to court documents, the motion for final judgment will be presented to a judge for approval Dec. 10. Such approvals have not been automatic recently: a federal judge in Michigan last month vacated agreed-upon orders for officials of Allen Park, Mich. That was unprecedented in the muni market, several securities lawyers said at that time.

SEC officials and bond lawyers have also said the Harvey case set a significant precedent. Commission officials have indicated that they will likely use emergency injunctions to halt future muni sales by other issuers if they think investors could be harmed by the offerings.

Litigation is still pending against Harvey comptroller Joseph T. Letke, who is accused of receiving hundreds of thousands of illicit bond proceeds through a years-long scheme. Letke has invoked his Fifth Amendment right against self-incrimination, according to court documents. He is set for another hearing in the same court on Dec. 22, according to the docket.

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